Massive Reduction In Corporate Tax Rates For India

There is a massive change in corporate tax rates for India, effective immediately and applicable to current fiscal year of  April 1, 2019 to March 31, 2020:
 
The Indian government has announced the “Taxation Laws (Amendment) Ordinance 2019” on September 20, 2019, thereby introducing certain radical changes in the Indian corporate taxation in order to boost growth. Following are the key changes:
 
  • Reduction in corporate tax rates for domestic companies from 30% (or 25% for companies with turnover below INR 4 billion) to 22% and for the new domestic manufacturing companies (incorporated after October 1, 2019 making fresh investments in manufacturing) the rate will be reduced from 25% to 15%, subject to the condition that all exemptions/incentives are foregone*. The new corporate tax rates will be applicable from the current fiscal year which began on April 1, 2019.
 
  • The effective tax rate for these companies shall be 25.17% and 17.01% respectively inclusive of surcharge and education cess.
 
  • Further, such companies will not be required to pay the Minimum Alternate Tax (MAT).
 
  • MAT relief for those companies continuing to avail exemptions/incentives is at a reduced rate of 15% from 18.5%.
 
  • The Indian government has expanded the scope of Corporate Social Responsibility (CSR) spending by adding the following on which CSR money can be spent:
  1. incubators funded by Central or State Government (including its agency /Public Sector  Undertaking),
  2. public-funded Universities,
  3. Indian Institutes of Technology (IITs)
  4. National Laboratories and
  5. Certain approved Autonomous Bodies (engaged in conducting research in science, technology, engineering, and medicine)
 
Implications
  1. The new measures will decrease the burden of corporate tax liability for domestic companies. Additionally, it will attract fresh investment in manufacturing sector and promote growth.
  2. The tax rate reduction is only for companies, making it a more attractive option over LLPs.